What is Maintenance Margin?

With the help of the maintenance margin offered by the stockbroker, an investor can buy various kinds of financial products including shares, debentures, bonds and options.

(Newswire.net -- December 4, 2017) -- Maintenance margin is the minimum amount that you should maintain in the account while borrowing money from the broker. The buffer money should be maintained in the account so that the investor will be able to repay the debt without any difficulty. The margin money is stipulated by the broker so that the investor will invest the money carefully. In most of the cases, the maintenance margin will be 25% of the value of the securities borrowed from the broker.

Why maintenance margin?

There are several reasons to go for maintenance margin. It is the facility extended by the broker to investors so that investors will be able to buy securities beyond the deposit amount present in their account. If the investor is sure above the fall or rise of the stock price, he or she will go for maintenance margin.

The investor will be able to buy securities many times his or her deposit account with the broker. The interests of the broker will be protected by stipulating the maintenance margin. However, a margin call will be issued by the broker if the investor fails to maintain the minimum balance as per the maintenance margin definition. If the investment value is higher than the current sale price, the investor will suffer loss. Hence, the investor should monitor his account and should ensure that sufficient margin balance is maintained at all times without fail.

The minimum balance varies from one broker to another broker. There are some brokers who may stipulate the maintenance margin of 30% or more. The security prices will change. They may go up or down. Hence, the investor should ensure that the minimum amount is maintained in the account at all times. The maintenance money is not a fixed value. Hence, the investor should be aware of the percentage that should be present in the account. The maintenance margin is also called as the minimum maintenance or maintenance requirement.

Benefits of maintenance margin

With the help of the maintenance margin offered by the stockbroker, an investor can buy various kinds of financial products including shares, debentures, bonds and options. The cash will be loaned by the broker. The purchasing power of the investor will increase enormously by utilizing the maintenance margin.

If you are using a margin account, you should be abiding by the rules and regulations as stipulated by the broker. You should maintain the minimum amount of equity at all times as specified by the broker. If you are going for margin trading, you should understand the fact that it is regulated by the security agencies. Security agencies will ensure that the interests of investors as well as brokers are protected.

The broker will get the signature of the investor on the margin form before offering the margin trading facility. The margin agreement will be made as per the minimum requirements of the security regulations. If you are a beginner, you should have good trading knowledge so that you can pick the most appropriate securities that are eligible for margin purchase.